AP Macroeconomics Unit 5

What shifts the SRPC?

Change in expected inflation (direct relation)

What shifts the LRPC?

Change in NRU

4 ways to reduce debt

Dec supply of gov bonds, dec borrowing of priv loanable funds, inc taxes, dec expenditures

MV=PQ=

nominal GDP

crowding out

inc gov spending/borrowing reduces priv spending/investment, leading to HIGHER interest rates

budget deficit

tax rev < gov spending and transfer payments

expansionary fiscal and expansionary monetary

AD inc

contractionary fiscal and contractionary monetary

AD dec

Fiscal policy is ___ related to interest rates

directly

Monetary policy is ___ related to interest rates

inversely

Contractionary fiscal and expansionary monetary

dec interest rates

Expansionary fiscal and contractionary monetary

inc interest rates

interest rates are ___ related to investment

inversely

selling/buying bonds are used in ___ reserves

limited reserve

natural rate of unemployment

frictional + structural

NRU= unemployment rate when

there is no cyclical unemployment

In the LR, a dec in MS will cause the price level to ___ and the level of output to ___

dec, no change

a short run increase in national income could be caused by a decrease in ___

imports

an inc in ___ will cause an inc in the demand for money

price level

an inc in gov spending will cause both the ___ and ___ to inc

demand for money, nominal interest rates

the opportunity cost of holding cash is directly related to ___

interest rate

to counter the crowding out effect on interest rates, the fed can ___

decrease the interest on reserve balance rate

the effects of crowding out include

inc demand for money, makes it harder to borrow money, and inc interest rates/price level

deficit and debt are ___ related

directly